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Monday, August 07, 2006

Time Warner: Cutting Magazines At Time, Inc.

Stocks: (TWX)

Time Warner is reluctant to spin-out of sell its magazine unit, Time, Inc. The company is the original piece of the media giant, dating back to 1923 when Time magazine was started by Briton Hadden and Henry Luce. But, for the first six months of the year, publishing revenue was flat at a little over $2.4 billion. Operating income adjusted for amortization and depreciation dropped for the six months ending June 30, from $438 million last year to $388 million in 2006.

Time Warner has shown that it is willing to cut costs, aggressively, if necessary. With AOL's new model, 5,000 jobs are being eliminated.

The publishing unit has cut some jobs, but these reductions have been modest. Most of the company's large magazines, like People, have had reasonable advertising gains through the first half. According to the Publishers Information Bureau, People ad revenue for the first six months rose 3.2% to $425.8 million. These numbers have to be taken with a grain of salt, because they do not reflect the large discounts that many advertisers get for things like buying large numbers of ad pages. They are, however, probably a good benchmark for how individual magazines are doing.

Some of Time, Inc.'s magazines are small and doing poorly. With substantial overhead, the smaller magazines really have to be winners to make a difference alongside publications like Sports Illustrated, People, and Fortune.

According to the Publishers Information Bureau, there are a few underperformers in the Time, Inc. house. Fast Company appears to be a dog. Advertising pages are off 25% through the first half. Field & Stream's pages are down 21%. Motorboating's pages are down 23%. Outdoor Life is off 14%. Popular Science is down by 10%. Skiing is down 19%. This Old House is off 18%.

It is probably safe to assume that some of these small publications, with limited revenue, make very little profit for Time, Inc., especially if their ad pages are off significantly. Printing and postage costs continue to rise, which will make it harder for these properties to contribute.

It may be time for some more belt tightening at the Time Warner publishing unit.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about. He worked at Time, Inc. from 1977 to 1980.

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